I own a Tesla model S, and am also a long term investor in Tesla. I’ve bought shares in them a few times, and traded the volatility a bit, and still hold a decent amount of shares. Of all my investments, Tesla is the largest single company. Why?

Fundamentals

people get can too hung up on price/earnings ratio, profit and market size. If you look at the fundamentals of the company without knowing anything about the product, TSLA is a joke. Its losing money, a LOT of it, and its market share and revenue cannot possibly justify its valuation. Luckily, there are darned good reasons for all of that…

For a very long time, Amazon made no profit, but the share was a darned good bet because it was a ‘get big fast ‘ play. Amazon now have near market dominance and everyone accepts that profitability is a choice, and a matter of when not if. Growing rapidly during development, and ignoring profit is a proven strategy.

Tesla is not losing money in the way people think. They are investing a LOT of money in capital expenditure, and some in R&D. Basically they are trying to copy Ford River Rouge factory in terms of vertical integration and scale. This is catastrophically expensive in the SHORT term. Investing to grow is fine, there is no evidence tesla actually loses money when it sells you a model S/X.

The market share of tesla is awful, but its market share of electric cars is WAY better, and nobody expects this market to do anything but grow rapidly. Most people accept that the Tesla model S absolutely crushes other electric cars (except maybe the more expensive BMW i8), so it already has a killer product. I’d be amazed if their dominance of the electric market does not get more pronounced when the model 3 is released.

Product.

The Tesla model S is incredible. Fast as hell, quiet as a mouse, looks outstanding, mine has a 220 mile real-world range, great range of gadgets, over-the-air updates and bug fixes. Impressive autopilot, incredibly good safety ratings. Cheap to insure, Very cheap to power, Cheap to maintain. It also has a great brand, and the company has a charismatic and visionary leader.

Vertical Integration.

Tesla will sell you solar panels to generate electricity, a tesla powerpack to store it with, and an electric car to use it, all seamlessly controlled by your mobile phone. When you go on roadtrips, you can stop at a tesla owned supercharger to fill up with cheap power courtesy of tesla, at super-fast speeds. When you buy any of the panels, battery or car, you do so in a Tesla store. And that car battery? its made by Tesla too. Even apple depend on samsung for major components o the iphone. Tesla are limiting their dependence on outsiders whilst simultaneously capturing the profit at every part of the sale.

Direct Sales.

All of teslas serious competitors are big old car companies. All of them sell through franchise dealerships. Those dealerships make a big chunk of their money through servicing. Electric cars require virtually no servicing compared to an ICE. Not surprisingly, the salespeople at other car showrooms want to sell you an ICE, something they understand, and which they have a financial incentive to sell. That BMW salesperson doesnt really want to sell you an electric car. All the Tesla sales peoples sell is…electric cars.

First Mover.

Tesla was the first company to bring out a desirable, sexy electric car, and the only one to design one as electric from the ground up (model s). They have no legacy ICE crap to deal with. They are not tainted by emission standards scandals or other nonsense. Their tech, their factories, their designers…all focused 100% on electric cars. The time for competitors to wake up and smell the coffee was the year the model S came out. They didnt notice, and even if they had, they needed to change direction fast. They didn’t. Tesla are way ahead.

Superchargers.

Tesla own the petrol stations as well as the car. Its genius. The experience of other charging networks is awful. You need a phone app to find them, then you need one of several different cables to plug in. You then need a swipe card, and an account, to swipe and authorize on an app, then you need to pay. When I find a tesla charger (which the car will navigate me to) I just stick the cable in my car and go grab a coffee. No passwords, no logging in, no hassle, nothing. Its actually way more convenient than petrol.

Diversification.

Maybe the model 3 will suck. Maybe all the tesla cars will be beaten. Big deal. Tesla is an energy & storage & transportation & battery company. Soon they will announce a tesla truck. In many ways they have a more diverse base than the big auto companies. The chances of ALL of their energy/storage/car bets failing are trivially small.

So there you go. I am not a financial advisor blah blah, but I do read everything I can about a company I invest this heavily in.  FWIW TSLA shares are $351 today. :D

 

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